Analysis Of Cash Flow And Deferred Tax Recording Of JB Hi-Fi Company

Analysis of the Cash flow statement

Every organisation needs to use a proper and planned strategic program and taxation compliances due to the changing policies and imposition of new regulations of taxation. The cash flow statement and deferred tax recording of the JB Hi- Fi Company has been analyzed in this report. It is a company, which has been operating its business with the variations in the International Accounting Disclosure, to establish the balance between the domestic and international accounting disclosure, every company needs to change their reporting frameworks.

The cash flow statement measures the inflow and outflow of cash in business in present year. It is a description of incoming and outgoing of cash. It shows the sources and applications of the cash in a business for a given period. It does not depend on the fact that the flow of cash belongs to the given period or not. There are various variations in the activities related to the cash flow (Ayers, Call, and Schwab, 2018).

The cash flow of the JB Hi-Fi company has been  AUD$ 191 million in 2017, which is 20% higher as compared to last year data. Company has to lower down the flow of cash in its business due the business outflow (JB Hi-Fi, 2017).

The company purchased plants and machineries in year 2017, which results into a hike in the outflow of cash in investment activities. The financial activities of company also depict an increase as it brought an issue of common stock to its shareholders, which raise the inflow of cash for AUD$ 396 in 2017 (Ayers, Call, and Schwab, 2018).

The cash outflow has increased by the payment of dividend for AUD$ 119 million, which shows a good distribution of dividends in the current year (Ayers, Call, and Schwab, 2018).

The cash flow of JB Hi-Fi has been up by AUD$ 21 million since last five years. It depicts a major increase in the overall cash inflow and outflow of the company over the five years.

JB HI FI LTD  (JBH) Statement of  CASH FLOW
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Net cash provided by operating activities	191	185	180	41	156
Net cash used for investing activities	-886	-52	-44	-38	-38
Net cash provided by (used for) financing activities	716	-131	-130	-28	-91
Free cash flow	142	133	137	5	121

The above analysis shows the changed cash flow of the company since last five years. This change in the outflow of cash is the results of investing activities and the inflow change is held due to the financial activities (Ayers, Call, and Schwab, 2018).

There are following items recorded in the books of account such as operating expense, interest expenses, Provision for tax, gross profit and total revenue. 

JB HI FI LTD  (JBH) Cash Flow Flag INCOME STATEMENT
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Revenue	5628	3954	3652	3484	3308
Cost of revenue	4398	3089	2854	2745	2610
Gross profit	1230	865	798	739	699
Operating expenses
Sales, General and administrative	1434	1006	931	884	839
Other operating expenses	-472	-361	-334	-336	-318
Total operating expenses	963	644	597	548	521
Operating income	268	221	201	191	178
Interest Expense	11	4	6	9	10
Other income (expense)	2	1	1	0	1
Income before income taxes	259	218	196	183	168
Provision for income taxes	87	66	59	54	51

(JB Hi-Fi, 2017).

Although, the non-cash flow items like provision for income tax and depreciation are not recorded in the cash flow statement, but it has an impact on the cash flows of the company (Brigham,and Ehrhardt, 2013).

As per my sightedness, the items related to the revenue income and expenditure has been recorded in the income statements of the company. The revenue total of the company includes the sum of total income; the accounting of tax and interest charged out of the profit is considered as the provision for taxation. Also the earning per share is the payment made to the shareholders (Burchell, et al. 2012).

Comparative analysis of the all three main flow of activities

The income statement has several items to be included in it such as total revenue, gross profit, operating expenses, provision for tax and interest expenses. The advance made to the clients and accrued expenses only shown in the cash flow statement, but have not been included in the profit and loss account of the company. These payments does not belongs to the same year so will not be charged from the previous year’s profit. Due to that reason these items have not been included in the income statement of the same year (Cazier,  et al. 2015). 

Tax is an obligatory duty, which is charged over the profit of the company by the government. The income tax payment of JB Hi-Fi is AUD$ 65.6 million, which is less than the tax paid as per the income tax rules

Particular(AUD $ in million)	2016	2017
Income tax expenses	86.8	65.6

Interest expenses have increased to manage the tax implication.

After overall analysis of the annual report of the company, we could estimate that the company’s tax rate time shown in the expenses is not the same with the tax payment made by the company in its income statement (Ifada, Luluk Muhimatul, and Nova Wulandari, 2015).

In 2017, Company paid Tax amounting AUD$ 65.6 million which includes all the tax payment of the business. If we compute the tax liability of the company as per the times expenses shown than the amount of tax should be 77.7 million. The tax rate is 30% and profit for the year is AUD$ 259 million.

• Treatment of tax computation as per the accounting and income tax rules is different.
• Tax computation is done as per the taxable income computed based on the taxation rules. Whereas the calculation of company’s tax rate times expenses is done as per the accounting regulations.
• Two reason due to which the tax payment varies:

1. It is possible that the revenue and expenses may not be allowed by the taxation rules but the same is charged in the profit & loss account as per the accounting rules and regulations.
2. Recording of bad debt, depreciation and donation differ as per the accounting laws and taxation rules (JB HI-FI, 2017).

The deferred tax liability is a provision for future taxation. The deferred tax liabilities is AUD$ 8.2 million. This is a tax that is assessed or is due for the current period but has not yet been paid. It is carried forward to the extent to which the company has earned the sufficient income against deferred tax assets is realised. The company has the deferred tax liability in the liability side of its balance sheet. The different approaches of accounting regulations and income tax rules decide the recording of the deferred tax assets and liability. It is observed that company has paid lower amount of tax as compared to the tax computed by using the accouting rules so recorded as deferred tax liabilities (JB HI-FI, 2017).

JB Hi-Fi Company has recorded the deferred tax liability in its accounts which means it has paid excess tax to the government (Kubick, et al. 2016).

Particular (AUD $ million)	2017	2016
Deferred tax liabilities	8.2	0

The income tax payable is recorded din the balance sheet of company. The company has current tax payables of AUD$ 9 million in 2017, which was AUD$ 4.9 million in previous years (Pomeranz, 2015).

The payable tax for current year is the sum which has to be paid by the company as per the income tax rules (Rathke, et al.., 2017).

Company paid deferred tax payment amounted to AUD$ 8.5 million.

Particular(AUD $ in million)	2016	2017
Income tax payable	4.9	9

(JB Hi-Fi, 2017).

The difference between income tax payment and payable arises because the income tax is charged on the profit whereas the income tax payable is the collective sum of outstanding tax which will be paid by the company in future and recorded in the balance sheet at liabilities side (Robinson, Stomberg, and Towery, 2015).

Explain, why this is with reason

It shows the cash outflow and inflow in the present year no matter whether it belongs to present year or not.

The cash flow statement of company shows the cash flow of AUD$ 98.5 million for the income tax payment, which includes all the tax payments (Wang, Butterfield, and Campbell, 2016).

The income tax payment shown in cash flow statement covers all the tax payment whereas income statement records only that amount of tax which is charged on the current year profit in the current year.

The tax charged on the profit is calculated as per the income tax rules whereas the cash flow covers all the tax payments in current year whether it belongs to the same year or not (JB Hi-Fi, 2017).

Treatment of the Tax

The excess payment of income tax as per the income tax rules blocks the cash amount of company which can be used by the company in any earning activities.

It might be difficult for the company to find out the accurate tax payment due to the changing rules and regulations of taxation (Xiaodong, and Xiaoyue, 2013).

The main thing which makes us amaze is that the company can never record the deferred tax liability and deferred tax assets in its books of accounts at the same time.

Difficulty in recorded the entire tax amount

If the company has deferred tax assets, then it blocks a high amount of cash of the company. The company suffers from the main difficulty to record the deferred tax liabilities and deferred tax assets in its books (Xinyuan, and Lijun, 2016).

Conclusion 

The company has the deferred tax liabilities and deferred tax assets due to the difference between the domestic and international reporting framework. In the end to conclude the entire discussion, it could be stated that proper rules and regulations should be followed by the company to avoid the issues in its taxation accounting.

References

Ayers, B.C., Call, A.C. and Schwab, C.M., 2018. Do Analysts’ Cash Flow Forecasts Encourage Managers to Improve the Firm’s Cash Flows? Evidence from Tax Planning. Contemporary Accounting Research.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Burchell, S., Clubb, C., Hopwood, A., Hughes, J. and Nahapiet, J., 1980. The roles of accounting in organizations and society. Accounting, Organizations and Society, 5(1), pp.5-27.

Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure requirements and the standardization of accounting practices on earnings management through the reserve for income taxes. Review of Accounting Studies, 20(1), pp.436-469.

Ifada, Luluk Muhimatul, and Nova Wulandari 2015 “THE EFFECT OF DEFERRED TAX AND TAX PLANNING TOWARD EARNINGS MANAGEMENT PRACTICE: AN EMPIRICAL STUDY ON NON MANUFACTURING COMPANIES LISTED IN INDONESIA STOCK EXCHANGE IN THE PERIOD OF 2008-2012.” International Journal of Organizational Innovation (Online) 8, no. 1 155.

JB HI-FI, 2017., Annual report., [Online]., Available from https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_JBH_2016.pdf  [Accessed 14th May, 2018].

Kubick, T.R., Lynch, D.P., Mayberry, M.A. and Omer, T.C., 2016. The effects of regulatory scrutiny on tax avoidance: An examination of SEC comment letters. The Accounting Review, 91(6), pp.1751-1780.

Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review, 105(8), pp.2539-69.

Rathke, A.A., Rezende, A.J., Antônio, R.M. and de Moraes, M.B.M., 2017, September. Earnings Management Through Deferred Taxes in Brazil. In 3º Congresso UnB de Contabilidade e Governança-3rd UnB Conference on Accounting and Governance.

Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Wang, Y., Butterfield, S. and Campbell, M., 2016. Deferred tax items as earnings management indicators. International Management Review, 12(2), p.37.

Xiaodong, X. and Xiaoyue, C., 2003. Analysis on the Largest Shareholders’ Impact on Corporate Governance and Performance [J]. Economic Research Journal, 2, pp.64-74.

Xinyuan, C. and Lijun, X., 2016. Auditor tenure and Audit Quality: Empirical Evidence from the Chinese Securities Market [J]. Accounting Research, 1, p.008.